Euro Firms Face Loan Rate Spike as SME Credit Gap Widens
A surge in euro area bank lending rates is squeezing smaller companies, even as broader inflation and cost expectations show signs of cooling.
Euro area companies faced a steep jump in borrowing costs during the second quarter. A net 42% of firms reported increases in bank loan interest rates, a sharp acceleration from the 26% recorded in the first quarter. The rise in rates was uniform across both small and medium-sized enterprises and large corporations.
Increases in ancillary fees and collateral requirements continued, though the pace slowed. A net 31% of firms reported higher charges, down from 37%, while collateral demands rose by a net 10%. Companies still view the general economic outlook as the primary barrier to accessing external finance, with pessimism on this front edging up to 29%.
The overall availability of bank credit held steady, but this masks a growing split in the market. Large firms saw loan availability improve, with a net 4% reporting easier access. Conversely, SMEs experienced a deterioration, dropping to a net negative 4%. This pushed the overall financing gap—the difference between need and availability—to 3%, up from 2%.
Despite tighter financial conditions, businesses are dialing back their expectations for future price growth. Firms anticipate selling prices will rise by 3.2% over the next year, down from 3.5%. Non-labour input costs are now forecast to increase by 5.2%, a full half-point drop from the prior quarter. Wage expectations also moderated to 2.5%.
Median inflation expectations for the one-year and three-year horizons held steady at 3.0%. However, the five-year outlook ticked up slightly to 3.1%. The share of firms citing upside risks to that five-year outlook remained elevated at 65%, a signal that long-term price stability is not yet fully anchored in the corporate sector.
Companies are actively adjusting supply chains in response to the Middle East conflict. More than a third are seeking alternative material suppliers, and nearly a third are investing in energy efficiency, though large firms are far more likely to implement these strategies than smaller peers. Separately, businesses plan to fund artificial intelligence investments overwhelmingly with internal cash, with 72% avoiding external financing and only 6% turning to equity or venture capital.
